You Don’t Need To Spend All Your Money

I have been researching and writing extensively on physician-specific financial topics for over 4 years now at The White Coat Investor and in that time period I have noticed a trend that doctors need to be aware of. The typical image that the lay public has of the financial situation of a physician is one of abounding wealth. However, the vast majority of physicians I have interacted with do not feel their situation merits that description. In fact, a large percentage of doctors are not wealthy by any reasonable measurement. I am no longer surprised when I meet physicians in their 50s or even 60s whose net worth is less than their salary. With ever-increasing educational costs, many doctors in their 30s and even 40s still have a negative net worth.

Income Is Not Wealth

Few people, even among high-income professionals like doctors, ever read a book about personal finance or investing. The mainstream media often reinforces the idea that having a high income is the equivalent of being wealthy. Even the popular concept of “the 1%” is usually defined in terms of income, rather than real wealth. I hope this isn’t the first time you have learned this lesson, but income isn’t wealth. Wealth is defined by net worth, and net worth is built first by saving some portion of your income, then by investing it in some reasonable manner. Income is what you’re paid; wealth is what you have left.

Societal Expectations Are Against You

Your patients, your family, your friends, and probably even you have expectations of what your financial situation should look like. That is usually imagined in terms of what you spend—i.e. how large your house is, how nice your car is, where you vacation, how many toys you own, where your kids go to school, and what you do on your weekends. In fact, there are entire industries that wish to propagate this idea. I was once asked to write for a magazine aimed at physicians. They asked me to write my first column on what I felt was my best financial tip for doctors. I told them my best tip was for new attending physicians to spend dramatically less than they earn by continuing to “live like a resident” for a few years after residency. They actually told me I could not write on that topic because they were afraid it would hurt their ability to sell ads to their advertisers, all of whom wished to sell expensive items to high-spending doctors. If you are gauging how you spend on what you feel you are expected to spend due to your position or your income, then you are almost surely spending more money than you can while still becoming wealthy.

The Money Taboo

Society has a bit of a taboo about talking about money. However, that general taboo is nothing compared to what medical students experience from the time they start filling out medical school applications all the way through their careers. In most academic hospitals, any discussion of financial topics is looked down upon. You weren’t supposed to have gone into medicine for money. You try very hard to divorce the ability of your patients to pay for care from the care they actually receive. Being called “a rich doctor” is actually an insult. This attitude bleeds over into our personal financial lives, and leaves us vulnerable to our own natural tendencies to spend and also the tactics of unscrupulous financial professionals. Learn to fight against it! Learning how to properly manage your income will not make you a lesser doctor. In fact, it will increase your ability to practice medicine in any manner you see fit.

How to Stay Poor

If you don’t like to use words like “wealthy” or “rich,” then how about “comfortable” or “financially independent?” There is little excuse for someone with an income of $150,000, $300,000, or even $500,000 to not reach financial independence by mid-career. But it is surprisingly common for physicians to end up working late into their 60s or even 70s not because they wish to, but because they have to in order to sustain their family’s ridiculously high rate of spending. If you wish to stay poor despite having a high income, be sure to do the following:

1) Run up as much debt as you can during medical school. You’ll be a doctor soon. You deserve to live like a doctor now.

2) Don’t be in any kind of hurry to pay back your student loans. Don’t worry about refinancing them or looking into the governmental forgiveness programs.

3) Buy your cars on credit. Or better yet, lease them. Be sure to upgrade every couple of years.

4) Buy a big house in the best neighborhood. Then send your kids to private schools. Heck, why wait until you’ve finished residency? Using a “doctor loan” you can get a million dollar mortgage with nothing but an employment contract!

5) Hire the first person who contacts you wanting to be your financial advisor. Ignore that nagging feeling in your gut that he cares more about his commission than your financial wellbeing. Gradually transfer 25-50% of your retirement to his retirement account over your career.

6) Don’t bother learning anything about investing. Money is your most easily renewed resource. If your investments don’t earn much, you can just see a few more patients.

7) Buy whatever insurance the salesman recommends rather than evaluating the possible financial catastrophes in your life and insuring well against them.

In short, living like you have a limitless supply of money is a good way to ensure that you will always have financial stress in your life. If you learn to carve out 20% or more of your gross income to build wealth each year throughout your career, you may find that you have financial and lifestyle options available to few of your peers. The irony in all this is that living on 80% of a physician income is still a ridiculously wealthy standard of living when compared to the average American, much less the average human being throughout the world. As I frequently tell medical students, “If you can’t live on $200,000 a year, you have a spending problem not an earning problem.” Control your spending and spend a few hours each year learning about personal finance and investing and you will eventually become the rich doctor your family and friends think you are.

Summary: Living like you have a limitless supply of money is a good way to ensure that you will always have financial stress in your life. If you learn to carve out 20% or more of your gross income to build wealth each year throughout your career, you may find that you have financial and lifestyle options available to few of your peers.

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